24.01.2011

Bryn Thomas business sold

A statement has been issued by the administrators of Bryn Thomas Crane hire, BDO Manchester, confirming that the business has been sold to its directors.

The statement says that “following a review of the business and an ‘extensive marketing exercise’, the majority of the business and assets have been sold on Administration to two associated companies, Bryn Thomas Cranes Ltd and Bryn Thomas Holdings Ltd.”

All 46 employees at the company have transferred to the new company.

Dermot Power, BDO business restructuring partner, said: “Bryn Thomas Crane Hire Ltd had incurred significant losses following the downturn in the construction sector and under utilisation of the fleet of cranes. These losses were increased by the high finance costs across the fleet. We are, however, pleased to have secured the sale of the Company to Bryn Thomas Cranes Ltd and Bryn Thomas Holdings Ltd, ensuring all 46 jobs have been saved and providing customers with continuity of service.”

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Vertikal Comment

The way this transaction was conducted is a scandal. Perfectly legal – not unusual - but a scandal all the same. While the Thomas family has used the rules to save its business - something that we all might do if we were really up against the wall and saw no other way out - the administration rules and its practitioners have once again produced a result that just does not seem quite right.

BDO will be charging fat fees for running the administration which will very rapidly eat into any funds available for creditors. In fact if the administration runs along the usual lines, it will find an arrangement with the preferred creditors – usually the banks (who may have forced the administration in the first place) and then take the rest of the cash in the form of fees.

BDO claims to have ‘carried out an extensive marketing exercise’ – just as well it is not in the equipment or publishing business as it would be bankrupt by now!

No one that we have spoken to or heard from - many of whom were interested in all or part of the business - had even heard of the administrator’s appointment until well after the deal was completed. Nor was there any attempt to advertise the business or even seek offers via the industry media.

Finally, once again here is a classic case of the UK’s insolvency rules distorting the market. In a free market economy the better-run businesses survive while those that haven’t been so well managed fail. In this manner supply adapts to demand and the fittest survive.

Under UK rules, when they are well exploited as appears to be the case here, a company that fails because it took on too much debt; did not cut back on its overheads or was a slouch with its debt collection, is given a new start, with the same managers often picking up the assets at a fraction of their true market value and are thus in a position to give its more conservative competitors a harder time.

So supply is not adjusted to meet demand and taking the scenario to its ultimate, the better run company could eventually fail due to the tougher competition from the rescued business.

We do not know the terms of this deal, it is possible that they were more than fair and thus a ‘no brainer’ for the administrator. Some will ask why, if the Thomas family was able to buy the assets, did they not save the company? For all we know it may have wanted to, after all no administration is fun – it has a negative impact on the business and staff morale. Banks are often a block on the injection of additional funds.

Most British crane hire companies are persuaded – by their bank - to fund themselves via short term overdraft agreements and hire purchase. At times like this banks have a habit of cutting the overdraft facility with the minimum notice – often without notice – so a naïve owner transferring funds into the company via a loan, to help improve liquidity, will suddenly find that the bank, on receipt of said funds reduces the overdraft by the same amount and the company is no better off.

The owner on the other hand has lost whatever money he has paid in and is in exactly the same position as before. The situation may in fact be worse as the bank will have charged fees and may be more belligerent now it has less to lose by ‘pulling the plug’.

At the end of the day we do not yet know what the score was in this particular case. There will though almost certainly be a number of smaller creditors that have once again lost out to a process which is deeply flawed.